Your Insurance Company and Damage to Your Home; Tax Revamp; Why You Don't Need a Mortgage to Pay for the Mortgage Crisis

Aired October 27, 2007 - 13:00 ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FREDRICKA WHITFIELD, CNN ANCHOR: A white Ford F-150 from model years 1998 to 2004. It was seen near the spot where the Santiago fires started in Orange County. A $250,000 reward is being offered in this arson case. The huge Santiago fire is now 35 percent contained. It has scorched more than 27,000 acres and destroyed 14 homes. The mandatory evacuation is still in place for some areas. Authorities are sure that this fire was, indeed, arson.

And free Georgia's Genarlow Wilson is enjoying his first weekend out of prison in more than two years. Yesterday Georgia's Supreme Court ruled the Wilson's ten-year sentence for having consensual oral sex with another teen amounted to cruel and unusual punishment. Wilson was 17 at the time and the girl was 15.

And Florida's Democratic Convention is now under way but the big- name presidential candidates are no where to be found. Only Democrat Mike Gravel showed up. Why? The Democrats are upset that Florida moved its primaries to January 29th, forcing other states to push up their primary date.

I'm Fredricka Whitfield. I'll be back with news update in 30 minutes. Here now is YOUR MONEY.

ALI VELSHI, CNN HOST: Welcome to YOUR MONEY, where we look at how the news of the week affects your wallet. I'm Ali Velshi.

CHRISTINE ROMANS, CNN HOST: I'm Christine Romans.

Coming up on today's program, in the aftermath of the California wildfires, everything that you need to know before you call the insurance company about damage to your home.

VELSHI: Whether it's a fire or some other disaster, plus, the tax revamp that they're building as the biggest ever and how it could play out for your pocketbook.

ROMANS: Why you don't need a mortgage to end up paying for the mortgage crises.

VELSHI: But first these wildfires we are talking about, they raged across southern California earlier this week and they forced an estimated 950,000 people out of their homes.

ROMANS: Many have returned, some have found little left of their homes. CNN's personal finance editor Gerri Willis is in Rancho Bernardo, California, with more -- Gerri.

GERRI WILLIS, PERSONAL FINANCE EDITOR: Christine and Ali, it is just amazing here. I have to tell you. 1,800 homes demolished. I mean demolished, completely leveled here. Estimates of damage started at $500 million and yesterday we talked to a representative of the insurance commissioner and she said that the damage will probably escalate to $2 billion and maybe even $2.5 billion.

Now, let me make some comparisons for you. Previous disasters like this, previous wildfires. The Oakland wildfire was at $2.5 billion disaster back in '91 and wildfires that were here in '93 well they were about $2 billion. This could end up being the most expensive wildfire disaster in the state's history.

ROMANS: Tell us what you're seeing there and what people are telling you that they're worried about next.

WILLIS: I have to tell you, people are just now getting back to their houses, yesterday, today. They're just going through the rubble trying to find anything they can, any memento and especially any documents that they need. They're trying to figure out where they're going to go next and, of course, if they're going to have enough insurance coverage.

For most of these folks, they'll cash out their entire policy because their houses are completely level. I'll tell you, the important thing here for everybody to know, not just people in southern California is that more than half of Americans, 58 percent of Americans don't have enough homeowners insurance coverage.

VELSHI: That's the message to everybody who is not part of this particular disaster. Look at; use any of these opportunities to look at your own insurance. How is this different, Gerri than hurricanes, or floods or tornadoes that we often see?

WILLIS: Big difference, fire is covered under a standard home owner's insurance policy. That's the good news. Unlike hurricanes where we had all the problems with Katrina and people weren't covered, these folks should get some money. But the fact that many of them maybe are underinsured and they may not have to build their homes back and they may have to scale back and they may find problems getting what they need.

And you know how this works, when you have a large-scale disaster like this, prices escalate and building material costs go up, contractors are more expensive. So you end up spending more than you originally thought.

VELSHI: Gerri thanks very much, good talking to you. It is a good reminder to people to remind them how these things may affect them. Sometimes it is smaller claims in your house, but these weather- related events have been a much bigger issue. In fact insurance losses from weather events where the damages are more than $1 billion have shot up 15 fold in the last 30 years.

ROMANS: That got us thinking about what it means for homeowners in different parts of the country. CNN's Frank Sesno joins us now.

Hi, Frank. We are building in dangerous places or we are building in beautiful places and that means the damage goes up.

FRANK SESNO, CNN SPECIAL CORRESPONDENT: Yes and yes and yes. I mean, as it goes up a lot, in fact, one insurance study that I was reading that said the property value, the assessed property value just in the coastal areas has doubled in the last decade and now totals some $7 trillion.

You know, when people look at these fires out in California, they wonder whether this is going to be a harbinger of things to come. It seems like every time you turn around, there is another billion dollar disaster out there. What if we keep building like this? Places like the Tinder Dry Canyons of California, the hurricane-prone coasts of the Carolinas, the below sea level neighborhoods of New Orleans. Places that can go from this to this charred, wind-swept and water logged. What if these places keep getting hammered? It will affect more people, cost more money and we could find ourselves in an insurance nightmare.

(BEGIN VIDEOTAPE)

SEN. DIANNE FEINSTEIN, (D) CALIFORNIA: Just think about what it would be like to have four children to stand in front of a television camera and say, my house burned down, with it all my possessions. And we have no insurance. Think about it. Think about how you would feel if you were in that situation.

SESNO: It's a growing danger. Allstate has quit insuring homes in California and it has dropped earthquake coverage across much of the country. What if that continues? We'll need some kind of government-backed catastrophic insurance Senator Dianne Feinstein says.

FEINSTEIN: Companies must not be allowed to cherry pick the United States and only insure areas that are safe and secure and, say to other areas, you're on your own.

SESNO: What if the disasters keep coming, get worse. They will many scientists argue as climate change, drought and development collide. In 2003 the San Diego fires burned nearly 400,000 acres and destroyed 3,000 homes and businesses, nearly 4,000 vehicles. California's fires that season cost close to $2 billion in damages.

This year's fires could be even worse. What if the disasters continue? They will. California's fires like the hurricanes back east and tornadoes in the Midwest are as regular as the seasons, part of the natural landscape.

UNIDENTIFIED FEMALE: Yeah, we'll come back. We'll rebuild.

SESNO: A risk we take.

(END VIDEOTAPE) SESNO: A risk we take, it seems a risk more and more people are taking. Go and look at the census numbers and you see some of these sensitive areas have exploded with population just in the last decade. Los Angeles County more than 400,000 people added just since 2000, as a matter of fact. San Diego County up about 200,000. More people, less space, more expensive. It's a recipe for real problems, as we're seeing.

VELSHI: Now Senator Feinstein in that story that you just told us, said that insurance companies shouldn't be able to cherry pick where they go, if the risk is increasing and scientists sort of back that up, what then do they do? Because in some cases insurance companies pass that risk on in terms of higher premium and in other cases they just entirely say we're not insuring this region or this state, both of which come under some criticism from some people.

SESNO: It leaves consumers in a terrible place. You either have to pay the higher bill, you have to pay the higher bill or you're uninsured. And that is not much of a choice at all. I went back and looked at what some of the insurance companies have been saying in their speeches by their CEOs and their releases and all, that's what really changed. Their whole assessment of the situation, they have a parade of statistics that they put out there that are chilling.

For example, they say over the past 30 years insured losses from catastrophic weather events, those totaling over $1 billion have increased 15 fold. That's just an amazing thing between the '60s and the '90s, the number of these sorts of catastrophes have doubled. They see this trend going up and in fact the chairman of the Lloyds of London in a speech earlier this year said that he thinks it's possible to save $100 billion catastrophe twice the size of Katrina anywhere along the Atlantic coast.

ROMANS: Frank, I guess a lot of people like to knock the insurance companies and say hey they're raising my rates and oh they are not going to pay for this. Some people had to rebuild or fix their homes several times. I'm thinking in Florida and I'm thinking wildfire-prone places. I mean at some point with FEMA and the federal government and insurance companies sort of bailing people out, I mean, is there a moral hazard there? Might we come to a point where there are some places in the United States where we shouldn't rebuild?

SESNO: Well that actually has happened a couple years ago, actually when James Lee Lived (ph) was FEMA director he tried to have this buyout thing where in some of the very sensitive coastal communities FEMA would actually help you, would buy your property or try to help you redirect out of the area.

But, no, there is no end in sight. People have been moving in increasing numbers to these coastal areas and increasing numbers to these vulnerable places and again you get the situation where you look into the situation and read the insurance companies and what they're saying is that the vulnerability of these communities is increasing because of warmer waters and global warming. That is to say that the prospects for hurricanes and the prospects for these wildfires are intensifying. So, it really looks like a one-way street to more and more expensive disasters.

VELSHI: Frank, good to see you. Thank you for introducing this topic to us. One we'll be talking about a fair amount. Frank Sesno, CNN special correspondent.

ROMANS: All right. Up next on where YOUR MONEY, it doesn't take an extreme event like a wild fire to destroy your home, what every homeowner needs to know about their insurance, next.

(COMMERCIAL BREAK)

VELSHI: Well, insurance is something that every homeowner or for that matter renters should think about. Even if you don't live on a shore line, or a drought place, or a fire-prone region in the United States.

ROMANS: Whether you experience a minor league or a major catastrophic event many homeowner's first instincts is to pick up the phone and call their insurance company. But should that be your first move?

Let's find out from Bob Rusbuldt, he is the CEO of Independent Insurance Agents and Brokers of America. Welcome to the program Bob.

BOB RUSBULDT, CEO, IIABA: Good to be with you.

ROMANS: What is that first call? Let's say, first, it is a catastrophic event and your house has burned down, what is the first thing you do?

RUSBILDT: First thing you do is you pick up the phone or your cell phone because you probably don't have a phone and call your insurance agent. Tell your insurance agent that your house has been wiped out, that you're in essence, homeless. You have no place to go. Many of these people in California the only thing they have is the clothes on their back.

The insurance agent will start the claim's process for you and many insurance companies will do a partial claim settlement and advance you cash so you can stay in a hotel that night and buy new clothes and those sorts of necessities of life. Other insurance policies have living expense provisions in them. They will even give you a credit card for those types of expenses.

ROMANS: It is interesting because on this list it also says get an inventory of what is in your home, a list of what has been destroyed, take pictures, if you can, obviously, that is before the disaster strikes and take pictures, again, after the disaster strikes and find out if the insurer has a representative at your location. Probably a good idea, I guess, to keep this inventory and all this information somewhere else, isn't it? For those folks in California, if they have an inventory in a safe-deposit box, that is probably a good idea.

RUSBULDT: That is a good idea, one of the problems that we have, "a" people don't take photographs or videos of their belongings and the unique aspects of their house. Do you have built-in bookcases that were customized after the house was built? Those things need to be verified. Those who take videos and pictures leave them in their house and if it burns down they have no proof of that. Keep them in them in your office, or your workplace or a friend's house. It will smooth the claim's process remarkably.

VELSHI: It's remarkable Bob because when we cover things after Katrina, there were people who assumed that because the damage was done and it was sitting there in a pile of rubble, it was clear to everybody that were the case. I want to get down is to something with you. You're talking about calling your insurance agent. What is an agent, what is a broker and, by the way, the first person you may run into once you make your claim is an adjuster. A different kind of person altogether.

RUSBULDT: Correct. An adjuster is the person that will handle your claim after it's filed. They will make the determinations on how much money you get, what caused the damage in those sorts of things.

VELSHI: They work for the insurance company.

RUSBULDT: They work for the insurance company. Independent insurance agents are trusted choice independent insurance agents; they do not work for the insurance companies.

VELSHI: That's who you are.

RUSBULDT: That's correct. They represent many different insurance companies and they offer you choice, advice and counsel and then you have brokers that will represent the consumer not one insurance company. So, for most consumers, they have an insurance agent or broker that should be your first call. Independent agents stand with you during the claim's process.

VELSHI: I think this is an important distinction because what I think a lot of people think they do is call he insurance company directly and I've heard, Bob, that when you make that phone call, let's say it's not a fire. Let's say it's a leak or a damaged carpet or something like that. Once you make the phone call to the insurance company, it's like a driving record. Something goes on your record that you've made a claim.

RUSBULDT: Well that is true and many people do call insurance companies first and they have 800 numbers and that's an appropriate thing to do, however, when you make an inquiry, even if you're not filing the claim, that will go on your record. So, many times the best thing to do is call your local, independent insurance agent or your local agent. They will walk you through the process, give you the advice and counsel you need in filing a claim.

ROMANS: That is some very good advice. Let me ask you quickly for people who live in California, and Florida, and who live on the Atlantic Coast or anywhere in the paths of a natural disaster, how do they know how much insurance they should have and what is the number one mistake people make after they've been in a disaster trying to go through the insurance process? RUSBULDT: Well people don't realize the most important financial decision they may make in their lives is their insurance. People don't understand that until they have a complete catastrophic loss like the burning of your house. So, an insurance purchasing decision doesn't seem like an important decision at the time, but it could be literally a matter of whether you could put your family and your life back together again.

VELSHI: It seemed like a good deal at the time. You pick the one that seems like the best offer.

RUSBULDT: You know it's true. The cheapest policy is not always the best policy for you. You have to look at coverage amounts and deductibles and limits on coverage and those sorts of things. That's why you need a trusted adviser when you're walking through this very important process.

The biggest mistake people make is they're under insured. They don't report to their insurance agent when they add an addition to their house or when they do major remodeling of a bathroom or a kitchen, when they add a deck in their back yard. Those things if your house burns down and you haven't reported those, you don't get reimbursed for those additions and those improvements to your house.

ROMANS: All right. Bob Result, thank you so much, CEO of Independent Insurance Agents and Brokers of America. Some very good advice.

VELSHI: Can I pass on two pieces of advice from so many of our own correspondents. There are already adjusters out there measuring up and seeing what is going on, spend time with that adjuster. If people are on your property, try to be there with them and try and make your own notes of what is going on so that at all times you're communicating and it's not something you think of easily, but go and take pictures or video of the damage once it's done so that it's at least there and you've got that.

ROMANS: It's ideal if you have pictures from before, too.

VELSHI: It is ideal if you go and take pictures. Walk around your house with a videotape after the show finishes, stick around for a little while so it doesn't affect the ratings. Show what's in your house, it goes a long way.

ROMANS: All right.

VELSHI: We're going to take a break, when we come back, the trillion dollar tax overhaul plan and what it could mean for your future. They're calling it the biggest tax overhaul ever and we'll tell you how it affects you.

(COMMERCIAL BREAK)

ROMANS: New York Democratic Congressman Charlie Rangle this week unveiled what he is calling the mother of all tax reforms. His bill spells out an estimated $1 trillion overhaul of the tax system. VELSHI: His characterization certainly got our attention and if you think it will dramatically change your 2007 tax return, forget about it. It could, however, have a ...

ROMANS: I think that's Brooklyn.

VELSHI: It is a fancy name, but it might have some effect on you down the road. CNNMONEY.com senior writer Jeanne Sahadi is here to tell us all about that. She is such a friend of our show, because she explains these complicated things.

ROMANS: Like taxes.

JEANNE SAHADI, CNNMONEY.COM: Yeah. The simplest thing about this bill it's not going to go anywhere for a while, if at all. It will provide, basically, the debate over tax reform in 2008. One element from the bill however will get a lot of attention this year and will affect your 2007 taxes and that's a one-year patch on the alternative minimum tax. It will basically prevent 21 million people who don't deserve to pay the AMT from having to pay it.

VELSHI: This is the sort of tax rate with no deductions that a lot of people are now having to pay.

ROMANS: It was a tax that was meant for wealthy people that is suddenly slamming people it was never meant to slam.

VELSHI: The bill recommends repealing it. We're just patching it.

SAHADI: You asked for a 2007 tax return. That is about the only thing for this bill that will affect 2007 return. Congress is under a lot of pressure to-do something in like the next couple weeks. The IRS was saying, hey, folks, you have to do it now because we're going to press with our forms.

VELSHI: So your informed opinion is that as it's presented, the mother of all tax bills, is not necessarily going to see the light of day at least in the way the condition it is in?

SAHADI: This is going to be for debate in '08 and '09. Charlie Rangle gets a lot of kudos from both parties for bringing this up again. Two years ago the president's tax reform panel put out this huge report and then it fell silent.

ROMANS: I remember.

SAHADI: Everybody agrees tax code is too complicated and too many inequities they want to correct it, but no one can agree how to. Charlie Rangle came out with his proposals and he basically wants to repeal the AMT altogether but he wants to pay it for it. But the way he wants to pay for it is to impose this surtax on very high income taxpayers.

ROMANS: Does it essentially roll back some of the president's tax cuts in a different way. Is that how it works? SAHADI: It is actually pretty silent on the tax cuts right now and under the current law the tax cuts will expire by 2011. Even though he is repealing the AMT, it is as if he is opposing an AMT like tax.

VELSHI: People making what, $200,000?

SAHADI: It is going to start at $200,000 for married couples filing jointly and $150,000 for singles. They call this bill the mother of all tax aches. But even Democrat Max Baucus who is the leading Senate tax writer, he chairs the Senate finance committee, he says the surtax isn't politically viable.

So, I think what that means is people are going to talk about the provisions in this bill as kind of a starting point, too. You want to reform taxes, if there is a Democratic president in place in 2009, that's when people think something might happen.

ROMANS: Gosh, reforming taxes is like reforming Social Security. You know it is one of those things that everybody says has to be done, but it's very difficult and there are very powerful moneyed interests all the way along the way who are willing to lobby for their particular taxes.

VELSHI: It's remarkable. It makes the phone book look like a quick bathroom read. We should just get one it shows people. I'm sure once was interesting and then everybody started adding provisions. We kind of need to start from the beginning again.

ROMANS: Once was interesting.

VELSHI: It probably started out by saying when you make money you need to pay some of it to the government so that we can pave your streets and send your kids to school, and then it was but if you live here, you get an exemption because you can grow trees in your back yard and it gets carried away.

SAHADI: In Charlie Rangle's bill he does takes out a lot of corporate tax breaks that basically favor one type of industry over another.

ROMANS: He takes an out.

SAHADI: He repeals a lot of them and he also repeals an accounting method that will in fact raise a lot of revenue going down the pipe. In exchange for that, he has lowered the corporate tax rate, the top corporate rate by about 4.5 percent.

VELSHI: We're starting a discussion.

ROMANS: We're starting the decision.

VELSHI: Can you come back once you get a tax code and we can go through some specifics.

SAHADI: Can we just write the tax code? We can do like ten minutes.

ROMANS: Exactly.

VELSHI: We'll do it live.

SAHADI: That will be good.

VELSHI: Send your e-mails about what you think. Jeanne, so good to see you.

SAHADI: Thank you for having me.

VELSHI: I always thank Jeanne and I always mess up. Can you just say it?

SAHADI: Senior writer.

VELSHI: Thank you.

SAHADI: You're welcome.

ROMANS: That's pretty easy, senior writer.

VELSHI: I shouldn't have brought that up that I mess that up all the time.

ROMANS: All right. Coming up on YOUR MONEY, more on the California wildfires and how some companies give back in times of disaster.

And later the mortgage crises and what it's doing to your town's budget.

(COMMERCIAL BREAK)

WHITFIELD: Hello, I'm Fredricka Whitfield now in the news. A truck like the one you're about to see, this one right here may hold the key to one of California's arson investigations. Orange County officials are looking for the driver of a Ford f-150 model year between 1998 and 2004; they say it was seen near the site where the 27,000 acre Santiago fire started last Sunday.

Thousands of firefighters are making some progress on putting the wildfires down, but they're not completely out. Nine of the 23 blazes remain. The National Oceanic and Atmosphere Administration says wind patterns are pushing more of the smoke inland, adding to possible respiratory problems for some. Fourteen people in all have died, seven directly attributed to the wildfires.

U.S. military officials quoted by Reuters are calling their latest anti-missile test a success. Conducted last night off the coast of Hawaii, it was the fourth such simulation for this FAF short for thermal high altitude area defense or intercepting missiles outside the planet's atmosphere.

And Chrysler workers have a new contract agreement. The United Auto Workers Union approving a four-year deal with Chrysler after final votes today. The contract affects more than 100,000 current and retired employees.

Coming up at the top of the hour, more on the California wildfires and the search for the arsonist who started the Santiago Canyon fire. Now back to more of YOUR MONEY.

VELSHI: We never learn lessons from the last time, but we did learn some very big lessons from hurricane Katrina and one of those things has been put into place by some of America's biggest companies. They have answered the call of the Red Cross to do things that only some companies can do.

ROMANS: For more on that we're joined by Joanna Schneider the executive director of External Relations for the Business Round Table, that's an association of top American CEOs whose projects include the partnership for disaster response. Welcome to the program.

ROMANS: What are the first; I guess the top three needs that have been identified right now in the wake of the California wildfires?

SCHNEIDER: Certainly. Working with the American Red Cross, the Red Cross has identified some urgent needs that America's largest companies could respond to. The first and foremost is warehousing. They need to bring their individual response teams in and set up a platform so they can work to meet the needs of the individuals that have been affected.

The second thing that they most urgently needed was fuel cards. They needed gas cards so the individuals who were trying to assist both those who needed shelter and those who needed food could quickly get to the areas that they needed to get to. Lastly, as importantly, they need transportation of supplies from around the nation into the affected area.

VELSHI: Now Johanna we learned in Katrina that some of the stuff couldn't be coordinated. So I guess after that some of the companies got together and said, OK, when there's another disaster we're going to be able to get the message out to our companies and take advantage of their skills. Tell me who has been delivering on this warehousing, shipping and gas cards.

SCHNEIDER: Sure, absolutely. We did, we agreed that collective energies of our companies could really make a difference. So, for instance, in the warehousing area, ITT Industries and Granger said we have 30,000 square feet of warehouse space; we're going to turn that over to the American Red Cross.

In the fuel card area we saw that MasterCard, EDS and a number of other companies said we can provide Home Depot, the Home Depot Foundation said we'll send immediately to you gas cards for your individuals so they can get in those vehicles and they can quickly speed relief to the folks that are affected.

And then, lastly, again, very appropriately, BNSF Railroad said, use our railroad. We can ship whatever you need wherever you need it. Archer Daniels Midland said, a large company that does a lot of shipping said we're at your disposal.

ROMANS: This is fantastic public relations. It is good outreach for their clients, for their customers. It's also just the right thing to do. As we've seen over and over again, Ali and I have been talking about it, in so many cases it is that infrastructure and quick, you know, the quick movements of a finely-tuned corporation that can almost move faster than the government in some cases.

SCHNEIDER: Absolutely. We all have to remember that 85 percent of the nation's infrastructure is owned by the private sector. This is what they do every day. So, logistics, movements of goods and services. This is a perfect opportunity for the private sector to work for their neighbors and with their communities to speed relief and, as Ali said, quite appropriately, we learned after Katrina that we had to work together, create partnerships and meet the needs of our communities in these types of disasters.

VELSHI: Joanna Schneider of the Business Round Table.

Well tough times for housing and oil, Jennifer Westhoven will be here with what that all means to your wallet. Stay with us, you're watching YOUR MONEY.

(COMMERCIAL BREAK)

ROMANS: Brace yourself for a really crude conversation.

VELSHI: When you are going to have a crude conversation who better to bring in than Jennifer Westhoven. Hello Jen, welcome.

JENNIFER WESTHOVEN, CNN CORRESPONDENT: As Ali getting so heated up about this conversation we have been having about oil. Record oil prices this week they went to more than $90 a barrel and one of the big questions around here on Wall Street, as well, is it going to hit $100 a barrel and at what point are we going to have these higher prices tip the economy into, potentially, recession?

One of the things that is making these fears worse, of course, winter is on the way and, normally, we in America use a lot more oil because you have to add in all the oil we're using for heating on top of what we use for driving. Some good news for drivers, which is that gas prices have been higher in the past few weeks, but so far they really haven't matched the ferocious gain we see in crude. So our national average right now for gas is about $2.82, but there are plenty of analysts who say that we can probably expect a jump of 10, 15 cents.

VELSHI: That is almost where it was last year for gas. Oil is 50 percent higher and the issue here is, what does it do? I don't know why you brought up the whole recession thing, because the minute you start talking about it, people start talking about it. We have a poll at CNN Opinion Research Poll, 46 percent of Americans think we're in a recession, not headed for one, in a recession. Part of it energy, part of it is housing problem.

ROMANS: Some families are already feeling it. When you're looking at a house you're trying to sell or you are not selling it or you are looking at a mortgage that is going to go up or you are looking at all the houses on your street, the prices are going down. That makes you feel you're in trouble.

The housing numbers this week were rough again weren't they?

WESTHOVEN: They were rough and we are talking here about existing home sales and that means a home that a family has already lived in, it is the hugest part of the market. We're getting punches to the housing market month after month, but analysts say we may be in the second leg down.

Second leg down for the existing home sales. That's something that there is a lot of concern about. One thing we're noticing is that sellers beyond getting nervous now, we're starting to see some anecdotal signs of desperation and normally people get desperate they cut their prices, right? Right now so much trouble with people trying to get mortgages it's almost like the credit crunch, the credit freeze is keeping buyers out of that market.

VELSHI: And this housing meltdown is putting state and county budgets in a dire situation because Americans spent to spruce up their homes and sales tax went up and that benefited a lot of these states and counties.

ROMANS: And now those sales are slowing and home prices are falling and so is the revenue the government earned from real estate. That means Americans already hit by the mortgage crisis can be expected to be hit again by higher taxes or by service cuts.

(BEGIN VIDEOTAPE)

ROMANS (voice over): Falling home prices and a housing slowdown are biting into real estate revenue for counties and states. Every state except Vermont must balance its budget by law. That could mean higher taxes ahead or cuts in services, like education from primary school through the state college system.

RAYMOND SCHEPPACH, EXEC. DIR. NATIONAL GOVERNORS ASSN: That means higher tuition for students and for parents. Similarly and the elementary and secondary, that's normally a problem of not having enough teachers. That combined with some tax increases are going to clearly squeeze middle income Americans.

ROMANS: It doesn't end at higher tuition and fewer teachers. Expect higher fees to use public parks. Many states already have hiring freezes and are cutting back on administrative costs.

DOMINIC CALABRO, FLORIDA TAXWATCH: States will feel it because with fewer transactions, fewer sales of homes and even existing homes when people come in they bring in new carpeting, they buy new refrigerators, washer, driers they do a lot of major substantial repairs that cost tens of thousands of dollars and sometimes even low hundreds of thousands of dollars and all those items are subject to the sales and use tax.

ROMANS: Consider Florida whose real estate market exploded during the last decade and now lawmakers are in a special session facing more than $1 billion in spending cuts. Arizona with a $600 million budge shortfall in its 2008 budget. The governor predicts the housing slow down will result in slower retail sales in this state.

In New York the governor warned of a short fall of at least $3.6 billion next year due to slowdowns in financial services and real estate. In Baltimore County, revenue from real estate taxes tumbled 15 percent during the past year, with an even sharper drop expected this year.

(END VIDEOTAPE)

ROMANS: Sounds like a lot of municipalities Baltimore County's budget will not face a budget gap, in part, because of the budget office there thought this boom could not possibly continue, so we're not going to spend on things that are not one-time off kind of expenditures. So, there are going to be a lot of spending decisions over the last few years that were made.

VELSHI: Because of a housing boom.

ROMANS: Because of a housing boom and you're going to pay higher prices to go to your county park and you might pay more to go to your county pool. Even if you weren't hit by the mortgage crunch you might may end up paying somewhere else down the road.

WESTHOVEN: In a way the state governments are facing what some families are facing right now, which is that some of them borrowed so much of these mortgages and then they couldn't pay off the principal. The mortgage is now bigger than the price of their house.

ROMANS: What do they call it?

WESTHOVEN: They are called an upside down mortgage and for them to sell their house; they have to come up with $30,000, $40,000.

VELSHI: There isn't even an option to get out of the house.

WESTHOVEN: They're in huge trouble and those mortgages will get bigger and bigger.

VELSHI: We're going to be talking about this a lot next week, as well, Jennifer. We're going to be talking about what is at risk now for all of you who aren't necessarily involved in the housing crises how this spreads out.

ROMANS: Jennifer Westhoven, thank you, Jennifer.

All right. Coming up next on YOUR MONEY, how looking back can help you plan ahead when you pick next year's health insurance. Oh, it's all about open enrollment. Stay tuned.

(COMMERCIAL BREAK)

VELSHI: It is that time of year when fear and big bucks go hand in hand. We're not talking about Halloween, by the way. We are talking about open enrollment, the period when corporations tell you your options for health insurance in the calendar year ahead and I get that puzzled look on my face for a couple weeks.

ROMANS: And there is no candy, there is no payoff at the end. Choose wrong and you could pay for it with your pocketbook, your health or both. So Lynn Brenner is going to help us get a little bit smart about open enrollment. She is the contributing editor at "Parade Magazine." Lynn welcome to the program.

LYNN BRENNER, CONTRIBUTING EDITOR, "PARADE MAGAZINE:" Thank you.

ROMANS: You get the thing in the mail, you get e-mail from work, they say it's that time of year again for open enrollment and we all roll our eyes. We know it's an important decision to make. I've made the wrong decision before and found out suddenly that I'm paying more or that I'm not covered on something. What is the first thing to do?

BRENNER: Block out some time for it. You're going to wade through a lot of papers and it's time-consuming. The first thing to do is take a really good look at what you have now. What's wrong with it? What are you spending and then once you've got that benchmark, here's what I got now, take a look at what your alternatives are and you're going it look at the cost, what are the premiums, what are the deductibles.

BRENNER: So you're going to compare the costs of the different options and you're also going to look at are your doctors are in the plan in the alternative plan. It's a good idea to ask the doctor. Just don't rely on the insurer's Web site that lists all the doctors because they're very often not up to date.

ROMANS: Sometimes you know, the nurses or the office manager will tell you, you know what, we haven't been happy with them and we're thinking about dropping them.

VELSHI: You don't want to find that out in the middle of your year.

BRENNER: No, no. So, that's how, you do the basic comparison and then look at what are your maximum, out-of-pocket costs going to be with the different plans. One of the things that people are being offered more and more these days is what is a very high deductible plan. The good news it that it's the lowest cost plan. You'll see and it's very seductive it is very often comes in combination with a tax- deferred savings account. The bad news, which you really have to pay attention to, your out-of-pocket costs with that plan are going to be substantial.

VELSHI: Unless you never go to a doctor.

BRENNER: Unless you never go to a doctor.

ROMANS: Which is what we all hope for really?

BRENNER: Yes, of course. But the reason you have insurance is to cover you in the worse-case scenario. You want to look at with this high deductible plan what is the worse-case scenario. Even a young, healthy person can be in a car accident. So, you want to do, what is the maximum out of pocket you could pay? Some of these plans, your maximum out of pocket could be over $11,000 for a family in a year.

ROMANS: The important thing at this time of year is to sit down, if you have a spouse, sit down and figure out what their plan is and sometimes you have more than just the choices you're given at your job because, if you have children, you can start looking at them family plans and start to weigh --

VELSHI: It is just a matter of more, then if you are a guy living alone you can -- I could figure out my own health care.

ROMANS: Completely healthy guy living alone.

VELSHI: Completely healthy.

BRENNER: Who is never going to have an accident? Absolutely compare it with your spouse's plan and when you look at those deductibles bear in mind usually a deductible for each member of the family.

ROMANS: I got nailed on this last year.

VELSHI: What we feared is that this is not going to be without some work.

BRENNER: Unfortunately it will take work on the plus side; you could save yourself hundreds, maybe even thousands of dollars. You know, that's why they carve out the time. Sit down in one of those rare, nice, quiet little spells.

ROMANS: And all your spare time. Lynne Brenner, contributing editor for "Parade Magazine" thank you so much for joining us.

BRENNER: Thank you.

VELSHI: Why don't you just do the work?

ROMANS: Our lives are very completely different.

VELSHI: I'll have your life just to not have to go through the work of figuring it out. ROMANS: All right. Being a national football league referee can be a pretty thankless job. The only time any one thinks to acknowledge your performance is when thousands of fans are letting you know what a horrible job you've done on a call.

VELSHI: Now, this week, we meet a former NFL referee who left the sidelines, but not the game that he loves.

VELSHI: For 23 years, Jerry Markbreitt roamed the grit iron as an official for the National Football League, a black and white clad rule enforcer and touchdown signaler and occasionally peacemaker. After retiring in 1998 he wasn't ready to leave the league or the life behind.

MARKBREITT: Everything I learned, I learned from other people. That is way officially it goes, now I feel it's my duty and it is a pleasure to be able to give back all the things that I got.

VELSHI: Markbreitt is still giving back to the game every Sunday as head trainer for NFL referees traveling to games, taking notes and offering critiques to current referees.

MARKBREITT: I was supposed to retire, but I never got around to retiring.

VELSHI: And 22 weeks a year Markbreitt gives back to fans, too, with some q and a on football's x's and o's. Along with help from his wife Bonnie, Markbreitt writes a weekly online column for the "Chicago Tribune" called "Ask the Referee."

BONNIE MARKBREITT, WIFE: I should know all the rules by now.

VELSHI: Now that he's free to choose sides, his favorite team remains unchanged.

MARKBREITT: I can't remember the last time I went to a football game to see a football game. Just can't do it. For me, the officials are the team on the field that I'm rooting for.

(END VIDEOTAPE)

ROMANS: That's cool.

VELSHI: That's kind of fun. I was at a football game last weekend and I found myself fascinated by that because having done the story I was like, that's kind of neat.

ROMANS: Coming up, when we went behind the scenes for a look at what you need to know before booking your next cruise. Oh, I need a cruise.

(COMMERCIAL BREAK)

ROMANS: The U.S. dollar is at record lows versus the euro, it is plummeting against the Canadian dollar and this causing many Americans to rethink their vacation plans.

VELSHI: For a little while I thought that was interesting except that I realized that I earn my money in American dollars. Not as funny as I thought. As you make your final holiday trip preparations, a lot of people are changing them, I headed to the seaside to get the inside scoop on taking a cruise where your dollar might go a little further.

Listen to the CEO of the Cruise Lines International Association.

(BEGIN VIDEO CLIP)

TERRY DALE, CEO, CRUISE LINES INTL. ASSOC: It is just a truly magnificent way to relax, be engaged. There's educational enrichment and then, obviously, 500 ports around the world that you can take advantage of.

VELSHI (ph): One of the things you have to combat is the perception over the last few years that some people have gone on cruise ships and become sick. Tell me about that.

DALE: Let's talk about misperceptions. You're far more likely to get the stomach virus here on land than you are on a ship, 99 percent of our passengers have a perfectly healthy experience. So Ali if you listen to what your mom taught you when you grew up, wash your hands with warm water and soap frequently and don't rub your eyes, you'll have a perfectly great vacation.

VELSHI: If you're not involved in the cruise industry, you don't know how big a deal it is. Tell me a little bit about the industry.

DALE: Ali today it is a $35 billion industry that employs 348,000 Americans. So, our direct spending across this country is $17 billion and that's an 80 percent increase since the year 2000. So, it's really, not only a healthy, vital industry, but its future is really strong. We have 40 new ships that are on order that will be delivered between this year and 2012. That is a $20 billion infrastructure investment.

(END VIDEO CLIP)

ROMANS: Have you ever been on a cruise?

VELSHI: I like cruises.

ROMANS: I have never been on a cruise.

VELSHI: We should do a show on a cruise.

ROMANS: We should do a show on a cruise. Somewhere warm, please.

VELSHI: The good thing about these cruises is you can go to other places and you're spending of your food and all that is all on the ship. You can go out into this other country and spend a day in these different ports and, you know, I like the idea.

ROMANS: Love boat.

VELSHI: For those of you still watching.

ROMANS: Thank you for joining us for this edition of YOUR MONEY.

VELSHI: You can catch Christine later today at 6:00 p.m. Eastern on "Lou Dobbs this Week."

ROMANS: You can see Ali every week day morning on "American Morning." We'll see you back here next week.

VELSHI: Saturday at 1:00 and Sunday at 3:00. See you then.

WHITFIELD: Hello, I'm Fredricka Whitfield. Right now in the NEWSROOM, California is not out of the woods yet.

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